Overseas M&A is emerging as a strong pathway for Asia-Pacific consumer product companies or CP companies to enter new markets and expand portfolios, says a new report released today by consulting firm Bain & Company.
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In Asia Pacific, CP companies that pursued international growth through M&As achieved more in overseas revenue than companies that expanded organically.
While Asian companies have historically struggled in international markets owing to factors such as cultural relevance, Asia Pacific’s 50 largest CP companies saw overseas revenue grow three times faster than domestic revenue between 2012 and 2021.
Overseas revenue has become a primary driver of top-line growth for Japanese consumer product companies in particular, while those based in China experienced the fastest offshore growth.
Bain & Company’s Tokyo-based partner Hidenori Wakabayashi spoke with Retail in Asia to shed light on the strategy.
Be deliberate about the intent.
“The M&A strategy should be the extension of companies’ growth strategy,” Wakabayashi says. “And once a company decides where it needs M&A to fill the gap, it should proactively plan for opportunities.”
Deals typically fall into four archetypes. For example, one approach is scaling in a new or subscale market. “Companies that aim to accelerate overseas business building are pursuing this path, especially when they are in the segment where economies of scale and distribution networks are more critical,” Wakabayashi explains. The approach also ensures a speedy route to acquiring local talent and market intelligence.
Another approach is adding product segments to bring back to the current market, as in the case of Mengniu, which acquired the Australian infant formula maker Bellamy’s. “It was the main objective of the deal to grow Bellamy’s in China and other markets where Mengniu has a strong position,” Wakabayashi says.
Established companies can also buy into young brands with high-growth potential, such as Shiseido’s acquisition of ‘clean’ skincare brand Drunk Elephant, considered part of Shiseido’s efforts to revitalise [its] brand portfolio to appeal more to a growing customer group.
“Strong M&A players manage deal pipelines before the targets become available. Another point to emphasise is the importance of strong due diligence capability. Competition for attractive deals is getting higher and buyers are increasingly sophisticated. At the same time, access to data is easier. Diligence is no longer about identifying risks and playing defence. Companies will need a differentiated diligence capability that allows them to bid competitively and identify potentials correctly,” Wakabayashi says.
Culture can make or break a deal.
M&As inevitably bring a marriage of cultures, and often not just in terms of company culture or a shared vision. To successfully bridge the gap, Wakabayashi says the first step is to understand the differences and potential friction early.
“The leadership team should make a deliberate decision about the to-be culture, including the option to protect the current culture,” he says.
“Especially when the unique culture is the source of competitiveness, an acquirer should not push ‘integration’. In the integration approach, a company should focus on a few cultural fault lines that cause disruptive frictions. There are three common types: differences in purpose, differences in decision making, and differences in ways of working.”
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Consumer products M&A outlook for Japan and the rest of APAC
In 2023, strategic M&A activities are slowing down, impacted by the macro environment, says Wakabayashi.
“Globally, year-to-date consumer product deal value decreased by about 30 percent compared with the previous year. However, strong M&A leaders have used the downcycle to acquire attractive targets. Considering the strong M&A track record, we expect that Japanese CP companies will continue to look for cross-border deal opportunities.”